Working Paper: NBER ID: w16147
Authors: Kala Krishna
Abstract: The computable general equilibrium models used in the literature tend to be a bit of a black box. This paper provides some intuition behind what goes on in these black boxes by laying out a simple general equilibrium model and intuitively explaining what lies behind the demand for emissions. It traces out how a reduction in total emissions allowed in one country aspects the general equilibrium and the determinants of the extent of leakage in the model as well as more generally. It concludes with some implications for policy.
Keywords: No keywords provided
JEL Codes: F18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in emissions allowed in one country (H23) | Raises the equilibrium price of emissions domestically (H23) |
| Raises the equilibrium price of emissions domestically (H23) | Shifts the demand for emissions abroad outward (F64) |
| Reduction in emissions allowed in one country (H23) | Increased emissions in foreign countries (F64) |
| If all countries implement emissions controls (F64) | Reduced leakage (L15) |
| Emissions reductions in a home country (H23) | Increased total emissions globally (F69) |